Poland Reviews Pension Revamp Plan to Address Legal Concern

Poland’s government has dropped a proposal that would force privately managed pension funds to invest at least 75 percent of assets in stocks as it seeks to forestall any legal challenges to its planned system revamp.

Funds will also be allowed to hold government bonds until February 2016, according to a modified version of the draft law published on the government’s website today. The revision follows public consultations and reverses an earlier ban on investments in state debt. The measure must now be approved by the government and parliament and signed into law by President Bronislaw Komorowski in order to take effect early next year.

Poland plans to take over 51.5 percent of the privately managed funds’ pension assets, mostly government bonds, to reduce public debt by 9.2 percentage points of economic output. The move would give the government, which trails the opposition in opinion polls, some leeway to increase spending and boost economic growth before general elections in 2015.

“We want to do all we can to remove or minimize all legal doubts,” Prime Minister Donald Tusk told reporters today. “I’ll work closely with the president to make sure the final draft doesn’t carry any constitutional risks.”

Today’s version of the draft isn’t final, according to Tusk. The government may still decide to impose the 75 percent floor for stock investments before removing it gradually, with a decision to come tomorrow at a meeting of the cabinet’s standing committee, he said.

Draft’s Critics

The initial draft attracted criticism from, among others, the country’s central bank, the financial watchdog and state lawyers who said it may carry legal risks.

The proposed modifications are an “improvement,” Irena Woycicka, a minister at the president’s office, said today in an interview on Polish Radio One. Some concerns remain about the constitutionality and certain “technical” aspects of the proposed law, she said.

Among the points of uncertainty is the government’s proposal to automatically transfer to the pay-as-you-go state system pension-fund members who don’t specify whether they want to stay with the funds, Woycicka said.

Poles will have four months to declare whether they still want to save for their retirement in privately managed funds, according to the revised plan. They’ll be able to review their decision in 2016.

Pension funds in the mandatory system held 292 billion zloty ($93.6 billion) of assets, including 120.3 billion zloty of stocks and 124.1 billion zloty of bonds as of Sept. 30, data from Poland’s financial markets regulator show. The owners of companies running the funds include Aegon NV, Allianz SE, MetLife Inc., Aviva Plc, AXA SA, Assicurazioni Generali S.p.A., ING Groep NV and Nordea Bank AB.

The government has already included the pension-fund changes in its 2014 budget, which will run a 4.6 percent of GDP surplus thanks to the asset transfer, according to a Nov. 5 forecast by the European Commission.

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